Back to basics with Exter’s pyramid

It is obviously time to go back to basics. I say this based on the emails we’ve received this week which ranged from tears to tirades regarding gold and silver price action. While speaking with a friend a few months back (during a period of price weakness), I said tongue in cheek that I should write an article titled “We are not your psychoanalysts”! The amount of fear was and is astonishing to me. We have tried to demonstrate with math, logic and history what the ending is. The problem for most is, even if the ending is understood they “want it and they want it now”!
So, in an effort to help the panicked or despondent, let’s go back to the very basics. Below is an image of John Exter’s pyramid;

You will notice the pyramid is inverted. 100 years ago, this pyramid was inverted but obviously much smaller altogether. What has happened over the last 100+ years is that more and more “derivatives” of all sorts have been created. Also, “promises” of all sorts have been made. When I say promises, we are talking about pension plans, health aid, welfare etc. that promise current and future benefits. Basically, via the use of credit (and derivatives since the 1970’s), asset values have been continually inflated and re inflated. Without credit and without derivatives, valuations of most ALL assets would be only tiny fractions of what they are today.

The size and scope of the pyramid has gotten larger and larger in relation to the base (gold and silver). Notice that as you go higher and higher up the pyramid, the assets carry more and more risk. It is the high risk assets that now make up a larger and larger majority of all assets. Thus, “systemic” risk has continually grown over the years as the highest risk assets are now the vast majority of what society considers “assets”. As a side note, everything above gold on the pyramid is “derived” from money (gold), the further away from money …the lesser connection to (think money) value.

Looking at the pyramid, the vast majority of assets are “promises” to pay or perform something in the future. Gold and silver are different, they don’t promise anything at all in the future. Rather, theirs is simply a past promise. Gold and silver only promise that capital, labor and equipment WAS USED in the past to create it. This in a nutshell is what gold is all about. It already is pure money and the capital was already expended to create it. It does not need to promise anything in the future (ie. pay interest) to have value today. For example, what value would any debt security have if it promised to never pay any interest? (Yes I know, we almost live in that world now with some debt trading at negative yields but that only proves the point of insanity in our society today!).

Look around you, everyone and everything is in debt or has value created by debt. Sovereign treasuries all over the world now have debt to GDP levels that 30 years ago were signposts to being banana republics (and they are the ones who issue what the public considers money?). Pensions are woefully underfunded even with asset values at all time (and unsustainable) highs. Credit is now regularly offered with little to no proof of ability to pay back. Loans have had maturities extended so borrowers could “fit” into the amounts borrowed. …And on the other side, we have seen lenders/investors accept ridiculously low rates from deadbeats because “they needed yield”. Don’t ever forget, the vast majority of what the world now considers “assets”, require the performance of a promise(s) to perform. When the dust settles, this statement will be wholly obvious to all!

Folks, we live in a world of promises that cannot be kept. Where exactly do you believe the capital will flow to when promises cascade into broken promises? It will be THE largest transfer of wealth in all of history …INTO gold and silver because they don’t promise anything at all. Gold and silver are already “kept promises” that labor, capital and equipment were expended to create them. They are “proof” of kept promises!

These are trying times for those logically holding gold and silver. A financial collapse should have occurred sometime over the last three years but has not. Because it has not happened yet is not in any way proof that it will not. In fact, “math” is never refuted, only delayed. I will leave you with an example; is there any possible way London has the ability to deliver 3-4 years worth of global gold and silver production to their EFP’s? It’s OK, you know the answer … yet still worry over current price?

Standing watch,
Bill Holter
Holter-Sinclair collaboration

12 Comments

Utah Blaine
on July 13, 2018 at 12:42 pm

This is a great time to buy more. Which I have!

John C
on July 13, 2018 at 3:09 pm

Bill, I totally agree with all your points on gold and silver but timing is the issue. If the “powers that be” have held it together for the past hundred years, they will likely hold it together for many more. No one even imagined they could accomplish what they have after 2008. People simply do not want the system to fail and will support whatever the Fed does, even printing to oblivion. Only then will the gold rush happen.

John

Kenneth Hagesten
on July 13, 2018 at 3:52 pm

Yes, if you have gold and silver you have it. All other is credit soon to go extinct. One can also own other tangible assets like a home clear and free.

Bill and Jim and now Dave are correct! Math will be the truth teller and every thing will correct to its fair value! Its not complicated! Paper will crash, metals will take their rightful place as REAL Assets. Its just that simple!

John Barabe
on July 13, 2018 at 4:57 pm

So well put as always. Huge fan. Thanks for putting it into terms we can all understand. Reality will shine soon and just as the thousands of currencies in the past, these two will collapse.

bob
on July 13, 2018 at 6:52 pm

I am 73 and hope to see my gold bug fever amount to preservation. I have been a gold bug since 1967 and first taste of south African gold stocks….The elevator has been going up and down since. Some think I am well heeled, others think I am nuts. It is all about the next generation of kids and grand kids. Bring it on. This gold bug is in it come hell or high water

Mike E.
on July 13, 2018 at 8:47 pm

As Jim would say be careful what you wish for. Try to help people in need and and stay positive. If you have a small or large stack just stay in the game.Mike E.

Bradford Sparks
on July 13, 2018 at 9:22 pm

I have held my gold and silver coins from the days of $1,000 gold and $20 silver. I have no doubt, gold and silver will languish until the day after I sell both, to pay off my house.

I must admit to being rather skeptical about the upward direction of the price of gold and silver. I even attended one of the seminars offered by Jim Sinclair in Phoenix.

I will continue to hold against my better judgment.

Bruce Eblen
on July 13, 2018 at 10:55 pm

It is not necessarily that I worry about the current price. After 10 years of this what I worry about is the ability of those who are controlling the price to apparently control it indefinitely. They make the rules and the laws to benefit themselves. I remember the manner in which they changed the rules in mid-stream to ruin Bunker Hunt.

DANIEL MCDONALD
on July 14, 2018 at 1:32 am

YIKES!!! It’s like ADMIRAL HALSEY said in the heat of battle in the PACIFIC ” Damn the torpedoes full speed ahead”!!! Guess who WON that battle!!!
With your great encouragement we keep on ” truckin “.

Roswitha Derbuch
on July 14, 2018 at 7:38 am

I wonder what would be the impact to the price of gold if Trump decides that „fraudulent“derivative bank payments will not be honored and repaid?

Colman Wessel
on July 14, 2018 at 9:54 am

As I look at your pyramid I would suspect that if it was truly correct it would begin to weep even as a huge water container with many joints. However the price of gold refuses to move much at all. Many argue that the power guys have been frustrating gold efforts to move. I want to believe that because I am invested in it. Perhaps I have fooled myself all these many years. I find it is hard to ignore the true facts that I see. After waiting all these years I will probably wait some more. But I feel like a fool at times because I have missed a lot of profit in the market. Take care

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